With companies such as Pinduoduo, Glovo, and Ledger in its portfolio, Cathay Innovation is the venture capital arm of global investment firm Cathay Capital. The tech-focused VC firm has invested in companies across five continents and has offices in New York, San Francisco, Paris, Beijing, Shanghai, and Singapore.
Cathay Innovation has more than USD 1.5 billion of assets under management in different funds. The firm raised in December USD 792 million for its second Global Innovation Fund, while other multi-stage funds include Cathay Smart Energy, which focuses on supporting innovative carbon-neutral solutions, and Cathay AfricInvest Innovation, which cuts checks for early to growth-stage startups based in or focused on Africa.
KrASIA recently sat down with Cathay Innovation investment director Rajive Keshup and Nicolas du Cray, partner and head of Southeast Asia and India, to learn more about the firm’s plans for the rest of the year.
This interview has been consolidated and edited for brevity and clarity.
KrASIA (Kr): How does your investment strategy differ from Cathay Capital? What are some of the requisites you look for in companies?
Nicolas du Cray (NDC): Cathay Capital is a private equity fund. They invest in more traditional companies like retailers, while Cathay Innovation is a VC fund, so we invest in fast-growing tech companies with a global reach. We leverage our ability to identify trends in different regions by being present globally, and we also leverage industrial resources by our corporate investors.
Kr: How has the pandemic changed the game? Which are the most promising sectors you will look at for the rest of the year?
Rajive Keshup (RK): In Southeast Asia, we think that retail commerce is going through many transformations, including the entire value chain, from B2C brands to how commerce proliferates in different countries and the logistics behind it—we are studying this situation closely. Foodtech and agritech are two other themes that have started to hit a good scale in the region, and we have been working closely with startups in these sectors.
As Southeast Asia is a hub of talent for the world (with lower costs than other countries), there is a very interesting opportunity for the future of work. For example, US companies can hire Southeast Asian staffers without establishing an office here, thanks to solid tech platforms. This is another trend we are following.
The region is also becoming a hotbed for crypto and DeFi. Both the infrastructure level and the technology for creating coins and other services around DeFi are another topic of interest for us.
Finally, we like software a lot. We follow many enterprise SaaS solutions within our investing scope, and we noticed that the gap is becoming smaller for SaaS companies built in Southeast Asia and India that target western markets.
Kr: Your portfolio contains more B2B companies than consumer-facing firms. Will B2B startups take an even major role in your investment strategy going forward?
RK: Actually, some of our largest winners, in every geography, are B2C firms. In China, we have Pinduoduo, while we have Chime and Sidecar Health in the US. Also, Ledger in Europe. If you look at Southeast Asia, we have FinAccel. We think that outsized winners will still come from B2C. With that being said, enterprises in the B2B sector represent slightly slower growth than consumer companies, but are a safer bet. Our portfolio at the global level has a healthy mix of both B2B and B2C, knowing that B2B secures long-term returns, while B2C is a bet that could give a short yet faster and higher return.
Kr: How does China’s recent crackdown on big tech affect the investment landscape?
NDC: It’s not the first time that the Chinese government is trying to regulate some industries. It shouldn’t be much of a surprise because these are things that the government started to mention several years ago. Then, what happens is that people forget about it, the crackdown happens, and everybody seems surprised. These changes might actually make some companies more sustainable. Yet, there’s going to be a transition where companies will reform themselves and their behaviors, and they might stop growing at very strong rates—even unhealthy rates, I would say.
If you have crackdowns happening in parallel in industries like gaming, edtech, fintech, and maybe at some point insurtech, then you have other sectors connected to sustainability, green energy, IoT, semiconductors, and deep tech that will receive more interest from investors as they are being promoted by the government. Furthermore, there’s probably going to be a stage where B2B investment will be more favored in China compared to B2C. It’s not like the Chinese tech industry is dying—it is being reformed to prepare for the future and for more sustainable growth.
Kr: Pinduoduo is one of your most successful portfolio companies. Which other Asian startups in Cathay Innovation’s portfolio might become the next unicorn?
RK: In the insurtech space, the two companies that we think will be incredibly large are Hong Kong-based Coherent and Singapore-headquartered Igloo. Insurance in this region only has a penetration of about 2% to 3% across countries, so there is a long way to go in terms of overall digital insurance coverage.
Coherent is one of the few companies in the world doing what they are doing in enterprise SaaS for the insurance sector—they have started to build outside of Southeast Asia, and they have already developed a global customer base. Igloo is the only digital insurtech in Southeast Asia, and so we think these two startups could hike quite nicely in value soon.
We also have Singapore-based FinAccel, which recently announced it will go public in the US via a USD 2.5 billion SPAC deal with a US sponsor.
NDC: In China, every time we invest, we want the company to reach unicorn status. If you invest in an early-stage company and don’t aim to become a unicorn, you probably should not invest there. Some of the companies we see now with greater potential are Fiture, Tungee, and YuanBao.